₹1.24 lakh crore outflows! FIIs remain net sellers in 2025. Will they make a comeback?

FIIs Pull Out ₹1.24 Lakh Crore in 2025 So Far

In a notable trend for Indian equities, foreign institutional investors (FIIs) have remained net sellers in 2025, withdrawing a massive ₹1.24 lakh crore from the domestic equity markets till early June. This sharp outflow has raised questions about the resilience of Indian markets, the reasons behind such persistent selling, and whether foreign funds will return later this year.

According to data from NSDL, FIIs have been on a sustained selling spree in the cash segment, with April and May witnessing some of the heaviest outflows since the pandemic shock of 2020. The primary drivers behind this trend include global risk aversion, rising U.S. bond yields, geopolitical uncertainty, and profit-booking after the Indian market’s stellar rally in 2024.

Why Are FIIs Selling?

Several global and domestic triggers have influenced FII behavior:

1. Rising U.S. Bond Yields

U.S. 10-year Treasury yields have been hovering above 4.5%, making fixed-income instruments in developed markets more attractive relative to riskier emerging markets like India.

“The rising interest rates in the U.S. and a strengthening dollar are making Indian equities less appealing in the short term,” said Rajiv Mehta, Equity Strategist at YES Securities.

2. Political Uncertainty

India’s ongoing election cycle and the anticipation around the formation of the next government have also created temporary caution among foreign investors. While domestic investors appear confident in a stable outcome, FIIs are preferring to stay on the sidelines until political clarity emerges.

3. Valuation Concerns

Indian equity valuations, especially in the mid-cap and small-cap segments, remain elevated. FIIs have used this opportunity to book profits after the record-breaking 2024 market performance.

“FIIs entered in large volumes during 2023 and 2024. Some part of this selling could simply be rebalancing after hefty gains,” noted Sonal Varma, Chief Economist at Nomura India.

Who’s Holding the Fort?

Interestingly, despite the heavy FII outflows, benchmark indices such as the Nifty 50 and Sensex have remained relatively stable. Domestic institutional investors (DIIs), particularly mutual funds and retail investors, have stepped up and absorbed much of the selling pressure.

Mutual fund SIP (Systematic Investment Plan) inflows crossed ₹20,000 crore per month consistently in 2025, a sign of growing domestic participation. The resilience shown by retail and domestic investors has created a buffer, preventing large-scale market corrections despite FII withdrawals.

Will FIIs Return?

While the near-term outlook remains clouded by global macroeconomic uncertainty and political events, analysts believe that India’s long-term structural growth story remains intact and will eventually lure back foreign capital.

“India remains among the fastest-growing major economies. Once clarity returns on the policy front and U.S. rate cuts begin, FIIs are likely to re-enter,” said Neeraj Dewan, Director at Quantum Securities.

Additionally, India’s inclusion in global bond indices starting mid-2025 could trigger inflows into debt markets, potentially stabilizing currency volatility and creating a more favorable climate for equity investment.

Sectors Most Affected by FII Selling

FII selling has been largely concentrated in:

• Financials: Heavyweight banks and NBFCs have seen consistent outflows.

• IT Services: With recession fears in the West, tech companies remain under pressure.

• Metals and Commodities: China’s slow recovery and weak global demand have dented sentiment.

Conversely, sectors like FMCG, defence, and capital goods have seen relative strength as domestic themes gain favor.

What Should Investors Do?

Retail investors are advised not to panic in the face of FII outflows but to focus on long-term fundamentals.

“Timing FII movements is difficult. For long-term investors, India’s structural story of consumption, digitalization, and infra expansion remains compelling,” said Kranthi Bathini, Director at WealthMills Securities.

Experts recommend a diversified approach, favoring quality stocks with strong earnings visibility over chasing momentum.

Investor Outlook: Stay Grounded Amid Global Noise

While the ₹1.24 lakh crore FII sell-off in 2025 is significant, it doesn’t necessarily indicate a long-term trend reversal. India’s macro fundamentals—GDP growth of over 7%, strong corporate earnings, and high forex reserves—continue to attract global attention.

As the political picture becomes clearer post-election and the U.S. Federal Reserve adopts a dovish stance, a return of FII flows cannot be ruled out in the second half of 2025.

For now, investors should remain cautious, avoid herd mentality, and focus on asset allocation and quality stock selection.